The current economic turmoil and rampant financial and credit crunches has seen many businesses and organizations integrate various strategies in their business activities in order to stay in business. Cyrus Brown’ strategy involves taking measures in order to alleviate any uncertainty regarding his business’ financing needs. This report, therefore, aims to develop a cash budget for Brown’s latest venture: Cyrus Brown Manufacturing (CBM), from sales forecast data and collection estimates for CBM over the next nine months. Also, the report will answer a number of questions related to the company’s financing.
Short-Term Financial Management
Cash flow forms a critical part of a business and is mostly viewed as the lifeblood of businesses since it is the core focus of a financial manager both in terms of managing the daily finances of a business venture and in planning and strategic decision making efforts which are wholly aimed at creating shareholder value. Depreciation is a crucial factor that affects a firm’s cash flows. Cash flow refers to the activities that show movement of cash in an individual’s business and the operations that are carried out. This is used to determine how an individual can be able to determine cash patterns within the business for a given period of time. A cash budget offers a critical and valuable source of information for cash management. According to Correia et al. (2007) it is a report showing a firm’s projected cash inflows and outflows over a specified period of time. Ehrhardt and Brigham (2008) assert that firms may use monthly, weekly, or daily budgets for actual cash control, but monthly cash budget are mainly used for planning purposes.
The first step in calculating monthly cash requirements involves estimating the total collections. These are dependent upon actual sales and credit terms. After estimating the monthly cash inflows, the cash outflows are estimated. These include manufacturing costs, administrative salaries, lease payments, new plant investment, and miscellaneous costs (Bernstein and Wild, 2000). The calculations of the monthly cash inflows and outflows are shown on the Microsoft excel worksheet. The depreciation charges are excluded because the cost does not result in any cash outflow. Cash outflow occurs either when the business replaces an asset or when a loan is repaid. The total cash inflows and cash outflows are then used to complete the cash budget.
Total cash inflows
Total cash outflows
Net cash flow
Closing bank balance
In conclusion, the net cash flow for CBM was positive at the start of March and takes an increasing trend over the next months. The cash balance at the start of March was $50,000 and this increased tremendously to 5,351,750 at the end of November. The company may not need any outside financing since it is able to finance its operations effectively. The minimum line of credit for CBM is 277,500. If I were a bank manager, I would extend credit facilities to CBM because the company has experienced a substantial ability to finance its operations, with its bank balance having a rising trend which makes it an attractive investment. Also, the company has a high rate of turnover.
Bernstein, L., & Wild, J. (2000). Analysis of financial statements. New York, US: McGraw-Hill.
Correia, C., Flynn, D., Uliana, E., & Wormald, M. (2007). Financial management.6th ed. Cape Town, South Africa: Juta and Company Ltd.
Ehrhardt, M. C., & Brigham, E. F. (2008). Corporate finance: A focused approach. 3rd ed. Stamford, Connecticut, US: Cengage Learning.